Monday, March 01, 2010

China's US Treasuries Holdings Dipped?

Beijing’s long-feared dumping of US Treasuries, or the use and value of the PBoC’s central bank reserves was ignited again. The revelation that Chinese holdings of US Treasury obligations fell in December by $34.2 billion, to $755.4 billion, brought new fears. But are they justified?

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In December 2009, China slipped below Japan to become the second largest recorded holder of U.S. treasuries, as it continued to unwind holdings of U.S. Treasury bills and Japan bought over US$11 billion in treasuries. China's recorded stock of U.S. treasuries has fallen from US$800 billion in July 2009 to US$755 billion at the end of 2009. China has been shifting back to purchases of longer-dated treasuries after buying more T-bills in late 2008 and early 2009. China's holdings of Treasury bills has fallen from a peak of US$210 billion in May 2009 to US$70 billion at the end of 2009. This shift implies that China may be purchasing some U.S. assets through intermediaries. China's net purchases of long-term Treasury bonds were US$4.6 billion in November.

In mid-2008, China surpassed Japan to become the largest single holder of U.S. Treasury securities. After a sharp increase in its T-bill purchases in late 2008, China gradually reduced its U.S. short-term debt holdings and shifted into long-term Treasuries in 2009.

China dropped its overall holdings , yes, but the article fails to mention the shift in holdings by other key countries that offset completely China's sell-off. In December, the UK and Japan jointly increased their holdings by more than China dropped its holdings, + $US 36.4 bn vs. -$US 34.2 bn. China's current portfolio is really not that difference from recent history. China's December share of US Treasury holdings, 20.9% (as a % of total foreign holdings), is barely off its 2007-2009 average, 21.4%. But Japan's holdings are way off, and could revert towards the average, 23.7%.

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p/s photos: Padma Priya

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